UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15946
EBIX.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0021975
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 ALGONQUIN ROAD
ROLLING MEADOWS, IL 60008
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-506-3100
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes /X/ No / / (2) Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date. 6,670,245
Shares as of October 31, 1999.
EBIX.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Part I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998 ........................... 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998 (unaudited) ........ 4
Consolidated Statements of Comprehensive Income for the Three
And Nine Months Ended September 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited) ............... 6
Notes to Consolidated Financial Statements (unaudited) ........... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .................................................. 18
PART II - OTHER INFORMATION
Item 2. Changes to Securities and Use of Proceeds .................... 18
Item 4. Submission of Matters to a Vote of Security Holders .......... 18
Item 5. Other Information ............................................ 19
Item 6. Exhibits and Reports on Form 8-K ............................. 20
SIGNATURES ................................................................ 20
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
--------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 6,550 $ 1,053
Accounts receivable, net 6,850 6,378
Other current assets 286 310
-------- --------
TOTAL CURRENT ASSETS 13,686 7,741
Property and equipment, net 1,814 1,899
Capitalized and purchased software, net 6,004 6,561
Other assets 352 344
-------- --------
TOTAL ASSETS $ 21,856 $ 16,545
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 430 $ 4,032
Accounts payable and accrued liabilities 1,550 2,371
Accrued payroll and related benefits 398 182
Deferred revenue 3,707 3,418
-------- --------
TOTAL CURRENT LIABILITIES 6,085 10,003
Notes payable-long term 108 210
Other liabilities 44 265
-------- --------
TOTAL LIABILITIES 6,237 10,478
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 2,000,000 shares authorized,
Series D, 221 shares issued and outstanding 49 49
Common stock, $.10 par value:
Non-designated, 20,000,000 shares authorized,
10,249,336 and 7,395,449 issued and outstanding, in 1999 and 1998 1,025 740
Additional paid-in capital 68,938 48,717
Accumulated deficit (54,439) (43,516)
Cumulative foreign currency translation adjustment 46 77
-------- --------
TOTAL STOCKHOLDERS' EQUITY 15,619 6,067
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,856 $ 16,545
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- --------
REVENUES:
Software $ 536 $ 3,107 $ 2,688 $ 5,423
Services 2,656 3,902 9,447 13,582
-------- -------- -------- --------
TOTAL REVENUES 3,192 7,009 12,135 19,005
COSTS OF REVENUES:
Software 648 801 2,159 1,869
Services 2,134 2,341 7,084 6,548
-------- -------- -------- --------
TOTAL COST OF REVENUES 2,782 3,142 9,243 8,417
-------- -------- -------- --------
GROSS MARGIN 410 3,867 2,892 10,588
OPERATING EXPENSES:
Product development 1,364 813 3,833 2,049
Sales and marketing 1,740 758 3,346 2,312
General and administrative 1,232 1,375 6,313 4,321
Amortization of noncompete agreement 49 - 145 -
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 4,385 2,946 13,637 8,682
-------- -------- -------- --------
OPERATING INCOME (LOSS) (3,975) 921 (10,745) 1,906
Interest (income) expense (14) 112 152 345
-------- -------- -------- --------
Income (loss) before income taxes (3,961) 809 (10,897) 1,561
Income tax provision (benefit) 1 4 26 (48)
-------- -------- -------- --------
Net income (loss) $ (3,962) $ 805 $(10,923) $ 1,609
======== ======== ======== ========
Basic net income (loss) per common share $ (0.39) $ 0.11 $ (1.23) $ 0.22
======== ======== ======== ========
Diluted net income (loss) per common share $ (0.39) $ 0.11 $ (1.23) $ 0.22
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net income (loss) $ (3,962) $ 805 $ (10,923) $ 1,609
Other comprehensive income (loss):
Foreign currency translation adjustment 13 - (31) (6)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (3,949) $ 805 $ (10,954) $ 1,603
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
EBIX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(10,923) $ 1,609
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 575 822
Amortization of capitalized and purchased software 1,697 1,450
Amortization of noncompete agreement 145 -
Issuance of common stock as consideration for services provided - 51
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable, net (472) (2,894)
Other current assets 109 (281)
Accounts payable and accrued liabilities (821) (460)
Accrued payroll and related benefits 216 80
Other liabilities and deferred revenue 68 (868)
------------ ------------
Net cash used in operating activities (9,406) (491)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (490) (740)
Purchase of minority interest (50) -
Expenditures for capitalized and purchased software (1,140) (2,149)
------------ ------------
Net cash used in investing activities (1,680) (2,889)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on (repayments of) notes payable (3,704) 1,736
Net proceeds from exercise of common stock warrants 19,565 -
Net proceeds from exercise of stock options 753 -
------------ ------------
Net cash provided by financing activities 16,614 1,736
------------ ------------
Foreign currency translation adjustment (31) (6)
Net increase (decrease) in cash 5,497 (1,650)
Cash at the beginning of the period 1,053 2,642
------------ ------------
Cash at the end of the period $ 6,550 $ 992
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 231 $ 337
Income taxes paid 7 10
SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS:
Common stock issued for purchase of minority interest 188 -
The accompanying notes are an integral part of these consolidated financial
statements.
6
ebix.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods.
These financial statements should be read in conjunction with the financial
statements, and accompanying notes thereto, included in the Company's Annual
Report on Form 10-K, as amended, for the nine month period ended December 31,
1998.
The results of operations for the current interim period are not necessarily
indicative of results to be expected for the entire current year.
Certain prior period amounts have been reclassified to conform to the current
presentation. These changes had no impact on previously reported earnings or
stockholders' equity.
Note 2. NAME CHANGE TO ebix.com, Inc.
On October 22, 1999, the Company's shareholders approved a proposal to amend
the Certificate of Incorporation to change the name of the Company from
Delphi Information Systems, Inc. to ebix.com, Inc. Changing the Company's
name reflects the migration of its products and services to the internet and
its introduction of the internet insurance portal ebix.com.
Note 3. REVERSE STOCK SPLIT
On May 6, 1998, the Company's shareholders approved a proposal to amend the
Company's Certificate of Incorporation to effect a one-for-five reverse stock
split of the Company's outstanding $.10 par value Common Stock and to reduce the
number of authorized shares from 75,000,000 to 20,000,000 effective May 8, 1998.
All share and per share information in these financial statements have been
adjusted accordingly.
Note 4. BANK LINE-OF-CREDIT
Effective January 1997, the Company established a line of credit up to
$4,000,000 subject to borrowing base limits. The agreement provides for minimum
monthly interest at the prime lending rate plus two and one-half percent (2.5%)
on the greater of the actual amount outstanding or $1,600,000. Borrowings under
the agreement are secured by substantially all of the
7
Company's assets. The agreement includes certain covenants including the
maintenance of a minimum net worth of $2,000,000 and restrictions upon
certain activities by the Company without the approval of the lender
including the incurrence of senior debt, certain mergers or acquisitions, and
the payment of dividends. As previously disclosed, at December 31, 1998 the
Company was in technical default under certain provisions of the line of
credit.
In December 1997, March 1998, and September 1998, the Company executed
amendments to the line of credit agreement. The amendments extend the maturity
date of the agreement two years to January 31, 2001, alter the provisions of the
early termination fee, and modify the criteria for determining the amount
available under the line. In accordance with the amendments, from January 1,
through March 31, 1999, the Company could have borrowed up to two times average
monthly collections and subsequently, up to the sum of one times average monthly
collections from recurring maintenance revenue and seventy-five percent of
eligible non-maintenance receivables (as defined).
As of September 30, 1999, the Company had no borrowings under the bank line of
credit.
Note 4. PURCHASE OF MINORITY INTEREST
Prior to January 1999, Delphi Information Systems International, Inc., a
wholly-owned subsidiary of the Company, held a fifty-four percent interest in
Complete Broking Systems Australia PTY, Ltd. Effective January 1, 1999, the
Company acquired the remaining forty-six percent interest. The Company paid
approximately $50,000 and issued 22,222 shares of the Company's common stock in
exchange for the minority interest and an agreement not to compete from the two
former shareholders. The fair market value of the consideration has been
allocated to the agreement not to compete and is being amortized over the
fifteen-month life of the agreement.
Note 5. REDEEMABLE WARRANTS
On March 31, 1999, the Company extended the expiration date to June 18, 1999,
for unexercised warrants issued in connection with the May 1996 private
equity placement. Each warrant may be converted to one share of common stock
at an exercise price of $7.50 per share. For the nine month period ended
September 30, 1999, 2,671,550 of the 3,841,100 warrants available have been
exercised. Warrants to acquire 45,000 shares of stock expired on June 18,
1999.
8
Note 6. EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Net income (loss) (3,962) 805 (10,923) 1,609
------------------------ --------------------------
Common stock-weighted
average number of shares
outstanding 10,213 7,395 8,910 7,393
------------------------ --------------------------
Common stock equivalents:
stock options (a) 18 (a) 14
warrants (a) - (a) -
preferred stock (a) 10 (a) 10
------------------------ --------------------------
Total equivalents (a) 28 (a) 24
------------------------ --------------------------
Total shares of common stock
and equivalents (for diluted
EPS) 10,213 7,423 8,910 7,417
------------------------ --------------------------
Basic EPS $(0.39) $ 0.11 $ (1.23) $ 0.22
------------------------ --------------------------
Diluted EPS $(0.39) $ 0.11 $ (1.23) $ 0.22
------------------------ --------------------------
(a) Common stock equilvalents excluded to prevent antidilution.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the unaudited
financial statements and the notes thereto included in Item 1 of this
Quarterly Report and the financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K, as amended,
for the nine months ended December 31, 1998.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, the Company experienced
negative operating cash flow of $9,406,000. The Company funded cash used in
operating activities and investments primarily through the use of cash
proceeds from the exercise of stock warrants and employee stock options of
approximately $20,318,000, net of debt payments of $3,704,000.
Although the cash proceeds resulting from the recent exercise of stock
warrants and options provide the Company with unused sources of capital, the
Company continues to experience operating losses as well as negative cash
flows. In addition, the Company's current product strategy has added the
design and development of ebix.link, an Internet browser based product
providing electronic transmission between insurance carriers and insurance
brokers to the "ebix.global" product line (formerly the cd.global product
line, which name was changed to reflect the Company's name change as
discussed in Note 2). The Company launched ebix.com on September 8, 1999. The
Company is aggressively pursuing the successful commercialization of this
e-commerce insurance portal. However, ebix.com has not generated any revenue
to date and there can be no assurance that ebix.com will ever create positive
cash flows, increase revenues or achieve profitability.
CASH FLOW FROM OPERATIONS - Except for the nine months ended December 31,
1998 , the Company experienced significant operating losses in each fiscal
year since 1993, along with declining revenue. Historically, the Company
financed its operations through bank financing and private placements of
equity capital.
Although the Company has implemented certain cost cutting measures, there can
be no assurance that the Company will continue to experience improved
financial results. In particular, the Company continues to aggressively
pursue the commercialization of ebix.com. The commercialization of ebix.com
may require additional sources of funds. In the event existing sources of
liquidity are unattractive or inadequate to support the Company's current
level of activity, the Company could be faced with liquidity concerns, which
may result in potentially dilutive issuance of equity securities, the
incurrence of additional debt, or revenue sharing with certain strategic
partners. There can be no assurance that additional sources of liquidity will
be available to the Company on a timely basis or with satisfactory terms.
10
During the nine months ended September 30, 1999, the Company experienced
negative operating cash flow of $9,406,000, due principally to a net loss of
$10,923,000 and an decrease in accounts payable of $821,000, partially offset
by non cash depreciation and amortization expense of $2,417,000.
COMMON STOCK WARRANTS - During the nine months ended September 30, 1999, the
Company received approximately $19,565,000 from the exercise of common stock
warrants. These funds have been used to reduce borrowings and fund operating
expenses and accounts payable.
On March 31, 1999, the Company extended the expiration date to June 18, 1999,
for unexercised warrants issued in connection with the May 1996 private
equity placement. The expiration date for the unexercised warrants was
extended to allow warrant holders additional time to exercise the warrants,
given the Company's need for additional capital. Although the proceeds from
the exercise of the warrants currently provides the Company with adequate
sources of capital, the Company expects to continue to require significant
working capital while continuing to experience operating losses and negative
cash flows. There can be no assurance that the Company will maintain an
appropriate working capital level, which could have a material adverse effect
on the Company's financial condition and results of operations.
As of October 31, 1999, the following common stock warrants were outstanding:
Per Share
Number of Warrants Exercise Price Expiration Date
- ------------------ -------------- ---------------
75,000 $17.50 December 1999
1,038,100 $7.50 January 2000
11,450 $5.00 May 2001
For those warrants listed above with a per share exercise price of $7.50, the
Company may redeem the warrants at $.05 per warrant if the closing bid price
for the common stock is at or above $10.00 per share for twenty consecutive
trading days.
COMMON STOCK OPTIONS - During the nine months ended September 30, 1999, the
Company received approximately $753,000 from the exercise of outstanding
stock options. As of October 31, 1999, there are outstanding vested options
to purchase approximately 213,000 shares of common stock at an average strike
price of $4.76 per share. The majority of outstanding options have expiration
dates in excess of five years from September 30, 1999.
BANK LINE-OF-CREDIT - Effective January 1997, the Company established a line
of credit up to $4,000,000 subject to borrowing base limits. The agreement
provides for minimum monthly interest at the prime lending rate plus two and
one-half percent (2.5%) on the greater of the actual amount outstanding or
$1,600,000. Borrowings under the agreement are secured by substantially all
of the Company's assets.The agreement includes certain covenants including
the maintenance of a minimum net worth of $2,000,000 and restrictions upon
certain activities by the Company without the approval of the lender
including the incurrence of senior debt, certain mergers or
11
acquisitions, and the payment of dividends. As previously disclosed, at
December 31, 1998 the Company was in technical default under certain
provisions of the line of credit.
In December 1997, March 1998, and September 1998, the Company executed
amendments to the line of credit agreement. The amendments extend the
maturity date of the agreement two years to January 31, 2001, alter the
provisions of the early termination fee, and modify the criteria for
determining the amount available under the line. In accordance with the
amendments, from January 1999 through March 1999, the Company could have
borrowed up to two times average monthly collections; and subsequently up to
the sum of one times average monthly collections from recurring maintenance
revenue and seventy-five percent of eligible non-maintenance receivables (as
defined).
As of September 30, 1999, the Company had no borrowings under the bank line
of credit.
In the event the Company's existing sources of liquidity are undesirable or
inadequate to support the Company's current level of activity, management
will endeavor to secure additional sources of liquidity. These sources may
include additional issuances of debt or equity. The Company may consider
transactions, which are dilutive. Dilutive transactions may require the
approval of existing shareholders.
PURCHASE OF MINORITY INTEREST - Prior to January 1999, Delphi Information
Systems International, Inc., a wholly owned subsidiary of the Company, held a
fifty-four percent interest in Complete Broking Systems Australia PTY, Ltd.
Effective January 1, 1999, the Company acquired the remaining forty-six
percent interest. The Company paid approximately $50,000 and issued 22,222
shares of the Company's common stock in exchange for the minority interest
and an agreement not to compete from the two former shareholders. The fair
market value of the consideration has been allocated to the agreement not to
compete and is being amortized over the fifteen-month life of the agreement.
REVERSE STOCK SPLIT - On May 6, 1998, the Company's stockholders approved a
proposal to amend the Company's Certificate of Incorporation to effect a
one-for-five reverse stock split of the Company's outstanding $.10 par value
common stock and to reduce the number of authorized shares from 75,000,000 to
20,000,000 effective May 8, 1998. All share and per share information in
these financial statements have been adjusted accordingly.
NEW ACCOUNTING STANDARDS - In March 1998, the AICPA issued SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition" and in December 1998, issued SOP 98-9, "Modification of SOP
97-2, Software Recognition, With Respect to Certain Transactions". For fiscal
years beginning on or before March 15, 1999, SOP 98-4 and 98-9 defer the
application of certain passages in SOP 97-2 which limit what is considered
evidence of fair value of various elements of multiple element arrangements.
Additionally, for transactions entered into in fiscal years beginning after
March 15, 1999, SOP 98-9 provides for revenue recognition for certain
software arrangements involving multiple elements where vendor specific
evidence does not exist for delivered elements. Management is in the process
of reviewing SOP 98-9 to determine its impact, if any, on the Company.
12
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which addresses the accounting for
derivative instruments. SFAS No. 133 is effective for financial statements
for the Company's fiscal year beginning January 1, 2001. The Company does not
expect that SFAS No. 133 will have a significant effect on its current
financial reporting.
EURO CONVERSION - Effective January 1, 1999, eleven of the fifteen member
countries of the European Union (the "participating countries") have agreed
to adopt a new common legal currency (the "euro"). The participating
countries established fixed conversion rates between their existing sovereign
currencies (the "legacy currencies") and the euro. Following the introduction
of the euro, the legacy currencies will remain legal tender in the
participating countries as denominations of the euro between January 1, 1999
and January 1, 2002 (the "transition period"). During the transition period
transactions may be settled using either the euro or the participating
country's legacy currency on a "no compulsion, no prohibition" basis.
Conversion rates will no longer be computed directly from one legacy currency
to another but rather will utilize a "triangulation" method specified by
European Union regulations whereby payments made in a legacy currency are
converted to the euro and subsequently converted to the recipient's desired
legacy currency. Beginning January 1, 2002, the participating countries will
issue new euro-denominated bills and coins for use in cash transactions. No
later than July 1, 2002, the participating countries will withdraw all bills
and coins denominated in legacy currencies such that legacy currencies will
no longer be legal tender for any transactions, completing the euro
conversion.
The Company currently has no bank accounts denominated in any legacy currency
and has not entered into any material transactions denominated in any legacy
currency. The Company has produced enhancements to certain software products
marketed in Europe to accommodate the euro conversion process (the "euro
module"). The cost to develop the euro module was not material and will be
provided at minimal cost to existing customers. Management believes the euro
module allows for the continued marketing and sale of the Company's products
to customers requiring euro conversion capabilities.
YEAR 2000 COMPLIANCE -The Year 2000 issue is the result of computer programs
being written using two digits rather than four digits to define the
applicable year. Any of the Company's internal use computer programs and its
software products that are date sensitive may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
among other things, the inability to process transactions or engage in normal
business activities.
The Company has developed and continues to monitor a multi-faceted,
comprehensive plan to address the Year 2000 issue and its potential effect on
the Company's business. This plan considers (a) Company-owned or licensed
software for internal use; (b) third-party- provided software services used
for internal use; (c) Company proprietary software marketed to customers; (d)
third-party software embedded in the Company's proprietary software marketed
to customers; and (e) third-party software marketed to customers.
Additionally, the plan addresses alternatives and contingencies to address
the possibility of situations whereby certain aspects of the Company's Year
2000 efforts are delayed or otherwise unsuccessful.
13
Internal-Use Software - The Company plans to address and resolve the Year
2000 issue with respect to internal financial and operational systems, such
as general ledger, order management, accounts payable, billing, accounts
receivable, fixed assets, time reporting and project management, by replacing
substantially all of such internal-use systems with vendor-certified, Year
2000-compliant software systems that offer enhanced features and
functionality relative to the Company's existing internal-use software
systems. The Company has purchased a Year 2000-compliant system and has
substantially completed implementation as of September 30, 1999. The
out-of-pocket software, hardware and personnel cost estimates associated with
this replacement system and requisite modifications to the Company's network
infrastructure range from $500,000 to $750,000. The Company has entered a
financing agreement with a third-party leasing company to finance the
software cost of $225,000. Other implementation consulting services of
approximately $265,000 will be paid on a monthly basis through the
implementation period. Through September 30, 1999, approximately $100,000 has
been incurred for implementation services. Additional operational systems
(telephone, customer service) were determined not to be Year 2000 compliant
and were replaced for approximately $630,000.
Approximately 50% of the Company's expenses are payroll-related expenses. The
Company relies on a third party for most of its payroll processing services.
The Company has received written certification from this payroll processing
vendor that the software used in its payroll processing services is Year 2000
compliant. Payroll processing may be further impacted by the preparedness of
various financial institutions and government agencies which receive
information via electronic interface. For certain vendors of less significant
products, the Company has referenced their Year 2000 compliance statements
and has performed tests internally to confirm their compliance. There can be
no guarantee that these third party products will be Year 2000 compliant.
Software Marketed to Customers - The Company has used and intends to continue
using both internal and external resources to re-program, replace and test
its proprietary software products for Year 2000 compliance. The Company
anticipates completing the Year 2000 project as soon as practical, but in any
event before any anticipated adverse impact. The total cost of this Year 2000
project is estimated to be approximately $150,000 of which approximately
$75,000 has been spent as of September 30, 1999. This project has been and
will be funded through existing cash resources and operating cash flows.
The Company also plans to determine the extent to which the Company's
software products are vulnerable to the failure of third party products to be
Year 2000 compliant. Generally, software products provided by third parties
that are marketed directly or indirectly by the Company to its customers are
developed by leading software suppliers with Year 2000 programs in process.
There can be no guarantee, however, that third-party software products
marketed by the Company will be rendered Year 2000 compliant on a timely
basis. The Company intends to continually monitor and evaluate Year 2000
compliance through internal testing and by obtaining written certification of
Year 2000 compliance from the vendors. If necessary, the Company will
consider alternative vendors to ensure Year 2000 compliance for third-party
software products marketed to its customers.
14
While the Company is not heavily reliant on non-IT equipment with embedded
technology, the Company will assess and evaluate such equipment as a part of
its Year 2000 efforts.
The requirements and timetable for the correction of Year 2000 issues are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that may
cause material differences include, but are not limited to, the availability
of trained personnel, the ability to locate and collect all relevant computer
codes and similar uncertainties.
The Company presently believes that with the conversion to new internal-use
software and with the planned modifications to its products, the Year 2000
issue will not pose significant operational problems for the Company and/or
its customers. However, if such conversions and modifications are not made,
or are not made on a timely basis, the Year 2000 issue could have a material
effect on the Company and customers utilizing certain products.
RESULTS OF OPERATIONS
The Company's current product strategy focuses on the introduction and
successful commercialization of ebix.com. Although the Company is
aggressively pursuing the development of this new Internet insurance portal,
there can be no assurance that competing services or products incorporating
more efficient technologies would not render ebix.com unmarketable. Further,
market acceptance of ebix.com could depend upon the formation of
relationships with strategic partners. There can be no assurance that the
Company will be successful in forming strategic alliances or that such
strategic alliances will not result in revenue sharing or potentially
dilutive issuances of equity securities, all which could have a material
adverse effect. The Company continues to provide the agency management
product line which is comprised of "ebix.global" (formerly cd.global), a
modular, state of the art, agency management solution providing flexibility
and the ability to handle unstructured data and complex risk and "ebix.one"
(formerly cd.one), a structured system utilizing many features of the
Company's previous products. The Company also has six "legacy" products
including INfinity, INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. These
legacy products provide basic functions such as policy administration, claims
handling, accounting, and financial reporting. Legacy products will be
maintained and supported as long as there is adequate economic and strategic
justification.
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
The Company's revenue is derived from the licensing and sale of internally
developed and third party software ("Software") and from professional
services, maintenance services, and support services ("Service").
Professional services include consulting, implementation, training and
project management provided to the Company's customers with installed systems
and those in the process of installing systems. Total revenue, consisting of
Software revenue and Service revenue, for the quarter ended September 30,
1999 was $3,192,000, a $3,817,000, or 54%, decrease compared to the same
quarter of the prior year.
15
Software revenue for the quarter was $536,000 in the current year versus
$3,107,000 in the prior year. The decrease is primarily attributable to Y2K
purchase deferrals and a general softness in the software market.
Service revenue for the quarter was $2,656,000 in the current year versus
$3,902,000 in the prior year. The decrease is primarily due to a decrease in
support revenues associated with legacy products partially offset by an
increase in support revenues associated with the agency management line of
products. It is anticipated that future support revenues from the agency
management line will increase as systems become fully implemented due to
delayed recognition of support revenue until systems are fully implemented.
Costs of software revenue was $648,000, or 120.9% of software revenue, in the
quarter ended September 30, 1999 compared to $801,000, or 25.78% of software
revenue, in the same quarter of the prior year. Excluding amortization of
capitalized and purchased software, costs of software revenue was $81,000,
15.11% of software revenue, in the current quarter as compared to $227,000,
or 7.31% of software revenue, for the same period last year.
Costs of service revenue decreased to $2,134,000, 80% of service revenue, for
the quarter ended September 30, 1999, from $2,341,000, 60% of service
revenue, for the same quarter of the prior year.
Product development expenses for the quarter ended September 30, 1999 were
$1,364,000, an increase of $551,000 from the same quarter of the prior year.
This increase is primarily due to a change in the focus of internal
development personnel to projects that were not eligible for capitalization.
Sales and marketing expenses for the quarter ended September 30, 1999 were
$1,740,000 representing an increase of $982,000 from the comparable quarter
in the prior year. This increase is attributable to the ebix.com product
promotion.
General and administrative expenses for the quarter ended September 30, 1999
were $1,232,000, versus $1,375,000 in the comparable quarter in the prior
year. This decrease is due to reduced personnel expenses and related
department expenses.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenue, consisting of Software revenue and Service revenue, for the
nine months ended September 30, 1999 totaled $12,135,000, compared to
$19,005,000 for the same period a year ago. For the nine months ended
September 30, 1999, total revenue is comprised of Software revenue of
$2,688,000 and Services revenue of $9,447,000. For the same period the prior
year Software revenue and Services revenue totaled $5,423,000 and
$13,582,000, respectively.
16
Software revenue decreased $2,735,000 due to Y2K purchase deferrals and a
general softness in the software market. Services revenue decreased
$4,135,000 due to a decrease in support revenues associated with legacy
products partially offset by an increase in support revenues associated with
the agency management product line. It is anticipated that future support
revenues from the agency management product line will increase as systems
become fully implemented due to delayed recognition of support revenue until
systems are fully implemented.
Costs of software revenue was $2,159,000, or 80.32% of software revenue, in
the nine months ended September 30, 1999 compared to $1,869,000, or 34.46% of
software revenue, in the same period of the prior year. Excluding
amortization of capitalized and purchased software, costs of software revenue
was $462,000, 17.19% of software revenue, in the current quarter as compared
to $419,000, or 7.73% of software revenue, for the same period last year.
Costs of service revenue increased to $7,084,000, 75% of service revenue, for
the nine month period ended September 30, 1999, from $6,548,000, 48.21% of
service revenue, for the same period in the prior year.
Product development expenses for the nine months ended September 30, 1999
were $3,833,000, an increase of $1,784,000 from the same period in the prior
year. This increase is primarily due to a change in the focus of internal
development personnel to projects that were not eligible for capitalization.
Sales and marketing expenses for the nine months ended September 30, 1999
were $3,346,000, representing an increase of $1,034,000 from the same period
in the prior year. This increase is attributable to the ebix.com product
promotion.
General and administrative expenses for the nine months ended September 30,
1999 were $6,313,000, versus $4,321,000 in the comparable period in the prior
year. The increase is primarily due to higher expenditures for bad debts,
legal and audit fees, costs associated with the opening of the London,
Singapore, and Atlanta offices, and employee benefits costs.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995 - This Quarterly Report on Form 10-Q contains various
forward-looking statements and information that are based on management's
beliefs as well as assumptions made by and information currently available to
management, including statements regarding future economic performance and
financial condition, liquidity and capital resources, acceptance of the
Company's products by the market and management's plans and objectives. Such
statements are subject to various risks and uncertainties which could cause
actual results to vary materially from those stated. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, expected or projected. Such risks and uncertainties include the
Company's ability to overcome its recent history of operating losses and
declining revenues, the Company's ability to create, develop and achieve
market acceptance of its ebix.com Internet insurance browser, the Company's
ability to effectively compete with other Internet based insurance services,
the Company's dependence on strategic relationships to assist in promoting
market acceptance of
17
ebix.com, the need for and the availability and amount of future sources of
capital, the risks associated with future acquisitions, the Company's ability
to continue to develop new products to effectively address market needs in an
industry characterized by rapid technological change, the Company's
dependence on the insurance industry (and in particular independent agents),
the highly competitive and rapidly changing automation systems market, the
Company's ability to effectively protect its applications software and other
proprietary information, the Company's ability to attract and retain quality
management, and software, technical sales and other personnel. Certain of
these as well as other risks and uncertainties are described in more detail
in the Company's Registration statement on Form S-3 filed under the
Securities Act of 1933, Registration No. 333-12781, and the Company's
periodic filings pursuant to the Securities Exchange Act of 1934. The Company
undertakes no obligation to update any such factors or to publicly announce
the results of any of the forward-looking statements contained herein to
reflect future events or developments.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
nine months ended September 30, 1999. For additional information on market
risk, refer to the "Quantitative and Qualitative Disclosures About Market
Risk" section of the Company's Annual Report on Form 10-K dated December 31,
1998.
Part II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the May 1996 private placement made in reliance on Section
4(2) under the Act, outstanding promissory notes having an aggregate value of
$1,500,000 were exchanged for an aggregate of 300,000 unregistered units (a
"Unit"). Each Unit consists of one share of unregistered common stock and an
unregistered redeemable warrant exercisable to purchase one share of
unregistered common stock at an exercise price of $7.50 per share, subject to
certain antidilutive adjustments. The shares and the redeemable warrants may
be exercised at any time after the date of issuance for a period of three
years. The Company can redeem the redeemable warrants any time subsequent to
180 days after the issuance if the closing bid price for the common stock is
at or above $10.00 per share for twenty consecutive trading days subsequent
to when the redeemable warrants first are redeemable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders, held on October 22, 1999, the
following members were elected to the Company's Board of Directors, each by the
respective vote indicated to the right of such nominee's name:
18
Nominee For Against
Yuval Almong 8,811,518 256,648
William R. Baumel 9,011,853 56,313
Larry G. Gerdes 8,811,818 256,628
Abstentions and broker non-votes were not counted as either a vote for
or against the nominees for director and had no effect in determining the
outcome of the election for directors.
In addition to the election of the Company's Board of Directors, the
stockholders of the Company approved the adoption of an amendment to the 1996
Stock Incentive Plan (the "1996 Plan"), which increased the number of shares
of Common Stock available for grant under the 1996 Plan by 1,500,000 and
which reflected the five for one reverse stock split effective May 6, 1998.
The result of the vote by proxy and by ballot at such meeting was as follows:
of the 9,068,166 shares constituting the quorum 4,616,117 votes for, 538,228
votes against and abstentions, which had the effect of a vote against the
proposal and 3,913,821 broker non-votes, which had no effect on the outcome
of the proposal.
The stockholders of the Company approved the adoption of the 1999 Stock
Purchase Plan, which is intended to provide an opportunity for eligible
employees to acquire a proprietary interest in the Company through the
purchase of shares of Common Stock of the Company. The result of the vote by
proxy and by ballot at such meeting was as follows: of the 9,068,166 shares
constituting the quorum 4,702,759 votes for, 451,586 votes against and
abstentions, which had the effect of a vote against the proposal and
3,913,821 broker non-votes, which had no effect on the outcome of the
election.
The stockholders of the Company also approved a proposal to amend the
Company's Certificate of Incorporation to change the name of the Company from
Delphi Information Systems, Inc. to ebix.com, Inc. The result of the vote by
proxy and by ballot at such meeting was as follows: of the 9,068,166 shares
constituting the quorum 9,038,059 votes for, 30,107 votes against and
abstentions, which had the effect of a vote against the proposal. There were
no broker non-votes, which would have had the effect as a vote against the
proposed amendment.
Item 5. OTHER INFORMATION
Effective September 15, 1999, the Board of Directors of the Company accepted
the resignation of Max Seybold, as Chief Executive Officer and director.
Effective September 23, 1999 Robin Raina was named Chief Executive Officer.
Effective October 22, 1999, the Company changed its name from Delphi
Information Systems, Inc. to ebix.com, Inc. The Company's common stock trades
on the Nasdaq SmallCap Market under the symbol "EBIX".
19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See exhibit index.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ebix.com, Inc.
Date: November 15, 1999 By /s/ Richard J. Baum
----------------------------
Richard J. Baum
Chief Financial Officer
20
EXHIBIT INDEX
----------------------
EXHIBIT NO. DESCRIPTION
- ------------------ --------------------------------------------------
3 Amendment to Certificate of Incorporation
10.1 InfoSpace Agreements with Delphi Information
Systems, Inc.(*)
10.2 HP Agreements with Delphi Information Systems
Inc.(*)
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
(*) contracts will be subsequently filed as an amendment hereto.